Q3 2020 iHeartMedia Inc Earnings Call
Ask a question during the session you will need to press star one on your telephone. Please be advised that todays conference is being recorded if your car or any further assistance. Please press star zero I'd now like to hand, the conference over to your Speaker today, Mike I guess, deputy CFO and head of Investor Relations. Thank you. Please go ahead Sir.
Good afternoon, everyone and thank you for taking the time to join US for our third quarter 2020 earnings call. Joining me for today's discussion are Bob <unk>, our chairman and CEO and rich Bressler, President COO and CFO at the conclusion of our prepared remarks management will take your questions. Please.
Note that in addition to our press release, we had an investor presentation that you can use to follow along with our remarks before.
Before we begin let me quickly cover the Safe Harbor statement on slide two during this call we will make forward looking statements, including the current than expected impact of COVID-19 on the company's liquidity financial position and results of operations. These estimates are based on current expectations and assumptions that are subject to risks and uncertainties actual.
Results could materially differ from these expectations and assumptions and these risks and uncertainties are discussed in more detail in our filings with the FCC. In addition, as noted in our March 26, 2020 press release due to the uncertainty surrounding the impact of Cold 19, we reiterate that the company will not be providing full year.
For 2020 financial guidance on this call during.
During this call we will refer to certain non-GAAP financial measures reconciliations between our GAAP and non-GAAP financial measures can be found in our earnings release or in the investor presentation available on our website and now I'll turn the call over to Bob Thanks, Mike and good afternoon, everybody. Thank you for joining our third quarter 2020 earnings conference call.
I'd like to start by recognizing our employees, who continued their strong performance. Despite what is the most challenging environment any of us have ever encountered. Despite these challenges our employees continue to make great strides across the organization moving key initiatives forward building out new products testing, new ideas and serving our communities.
And our clients we have developed plans in accordance with the most up to date safety guidelines to open each of our markets when they're individual local safety criteria are met and in fact, approximately half of our 160 markets have returned to the office and we expect more to open in the coming months and it's encouraging to see them on EPS.
Average in Q3 markets, whose offices are open are performing about 600 basis points better the markets that are not providing us with even more confidence in our post global growth opportunities.
I want to mention a few headlines before I get into the third quarter results. One we're pleased that revenue continues to recover and improve sequentially while revenue in the third quarter remain below prior year, it's substantially improved when compared to the second quarter and continues to improve sequentially month over month too we feel our results. This.
Quarter, clearly validate the value of our multi platform products and revenue strategy and the investments we've made in our growth areas.
Revenue is now split approximately 50% broadcast revenue and 50% other revenue lines. These other revenue lines, which include digital amplify casting and networks all of which are businesses that had been the focal point of our growth efforts have meaningfully better revenue performance in our broadcast segment for example, digital grew 17%.
Year over year and was still up 8%, excluding the impact of podcasting, which grew 74%. Additionally, smart audio which is a part of our broadcast revenue line also had superior revenue performance down just 12% year over year better than the entire broadcast line, which was down 29% Euro.
Over year again, more validation of the transformation and modernization of this company and our growth potential three even in an economic downturn, we continue to invest in our strategic goals like podcasting to accelerate growth. For example in October we completed the strategic acquisition of Voxx Nast for approximately $50 million.
We believe this addition will be another driver for increased monetization of our podcasts business and that will strengthen our position as the number one pi gas company as measured by pod track also we continue to attract and collaborate with leading creators and creative talents, including the just announced partnership with Malcolm Gladwell Pushkal.
In industries, the Black effect podcast network, which recreated with one of our leading personalities Charlemagne the God a new Latino podcast network led by our own Enrique Santos 13 days of Halloween produced the partnership with blown house, an error Monkey Hillary Clinton's you and me, both and much more coming from our growing partnership.
With will Ferrell, Alec Baldwin Shonda Rhimes tender for TV and others I know many of you are interested in our PPI gas business and I will talk in greater detail about more exciting developments there in a few minutes for an important component of our growth strategy is modernization and the related cost savings we continue to lead the industry.
How advertising is bought and sold we've also developed the studio the future utilizing cloud based technology and AI that helps us maximize the performance of each market and we have created centers of excellence across the organization that consolidate key resources for the whole company into one location all this increasing quality.
Improving service and significantly reducing cost and with that I will turn to a few specifics of how this business performed in the third quarter.
I'm pleased to report that we've seen strong signs of revenue recovery with Q3 revenue improving significantly compared to Q2 revenue with each month through October improving on a sequential basis, while Q3 revenue of $744 million increased 53% over Q2 Q3 revenue was down 22.
Percent year over year due to the challenges that we and most of the world continued to face as a result of the macroeconomic impact of Cove in 19.
We're seeing encouraging signs across our markets in a multiple revenue streams. They indicate the recovery of our business is gaining traction since our low point of 137 million of revenue in April monthly revenue has more than doubled in September increasing to 291 million looking to Q4 revenue performance October increased 2% year over.
Year benefiting from a very strong political advertising cycle as well as a stronger business environment. While we don't believe that October results will be representative the Q4 as a whole due to the heavy political spending in the month. We do expect Q4 revenue results do better than Q3 and to be a continuation of the improving revenue trends.
Rich will speak to these monthly trends in greater detail during his prepared remarks, but based on what we see now we expect Q4 revenue to be down in the low to mid teens let.
Let me start with political revenue. This year has been our best year on record and compared to the last presidential election. In 2016, we expect political revenue to be up 67% for the full year. If you compare our total revenues for the company for the just close month of October, which again were up 2% to the performance of our markets and.
Battleground states, such as Michigan, Florida, and Wisconsin, you can see how strong the political impact was what those markets up 25%, 14% and 12% and total revenue respectively. While there was clearly unevenness in the political spend by geography, our results demonstrate the value of a broad disk.
Abuse in up markets it positions us well to take advantage of geographically isolated trends and political spending.
We remain committed to serving our diverse advertising partners with our barbell approach on one hand, we operate as high touch marketing partners, helping advertisers to craft and deliver a message to the customers and on the other end we offer products that allow advertisers to get to market quickly using our data targeting and technology.
Capabilities. We also continue to benefit from the diversity of our advertising base with no category, making up more than 5% of our total revenue and no single advertiser, making up more than 2% of our total revenue.
Turning to adjusted EBITDA and liquidity after reporting a small loss in the second quarter. We're pleased to report that we returned to profitability in the third quarter generating adjusted EBITDA of $162 million, a 191 million dollar improvement over the loss of 29 million in the second quarter and positive free cash flows of 14 million.
And a 21 million dollar improvement over negative $7 million in the second quarter, even as the revenue trajectory improves each month I will note that the speed of the recovery in advertising revenue is still uncertain and unpredictable with that in mind and out of an abundance of caution we remain prepared for a wide range of possibilities through years.
And beyond including a more drawn out recovery scenario as rich will discuss in detail, we proactively taken steps to reduce costs to fortify our balance sheet and to preserve liquidity one of the great things about this company is it strong free cash flow generation characteristics. The foundation of our company is our.
Paralleled scale, our business model has always been to build engaged consumer relationships by providing the best audio content by having the most trusted personalities and by offering always available companion chip to our consumers. We then monetize those relationships across each of our multi platform products and services.
Indeed behind our return to profitability, our positive free cash flow and our steady progression toward full revenue recovery is the fact that we have a uniquely powerful media platform anchored on our broadcast radio business that we have successfully used as the foundation to build or other platforms our broadcast.
Radio business has the largest reach any audio company in the country and now extends across more than 250 platforms and 2000 devices. According to Nielsen were ranked the number one broadcast company in 97 markets in the 18 to 49 audience and were ranked number one and 30 of Nielsen's top 50 metros.
In both cases, we have about three times more number one markets than our nearest competitor in terms of consumer reach broadcast radio remains the largest medium in the U.S. and Iheart has the largest broadcast audience and the country by a lot. We are twice the size of the next largest company in broadcast listening and.
Five times their size and digital listening. This scale also gives us the biggest platform to attract the best on air talent, including Ryan Seacrest Charlemagne, the God, DJ MB and Angela Yip, the breakfast club Elvis Duran Angie Martinez Big Boys, Steve Harvey Mario Lopez, Ellen Kay Bobby Bones, Woody Delilah Enrique.
Santos and many more who are big nationally regionally and locally as well as the biggest talk show host in America and it attracts the best creative talent and podcasting as well. We've also use the unparalleled scale of our broadcast radio platform and our strong personalities and creators help build out our many other businesses.
Like our digital business, which includes our Iheartradio App and service, which has been downloaded over 2.9 billion times, our newsletters the reach almost 12 million subscribers, our social media following of 223 million fans, which is over seven times larger than the next audio player in social and our.
Digital services associated with our stations and personalities that according to Comscore reach an average of 71 million unique visitors a month in Q3.
Additionally, our broadcast platform has helped build our number one podcast business and our events business, which although down this year for obvious reasons has had great success with virtual events like our recent Iheartradio Music Festival, and the Iheartradio Country Festival, which actually exceeded last year's live events, both in social impressions and livestream.
This platform has also helped make totally new businesses like the Black information network and immediate success. We launched began across 15 markets in the second quarter and a sense expanded to 25 markets in Q3, including New York City, and we're pleased to report that peak moments of audience engagement have coincided with major new.
Stories, indicating that has established itself as a trusted go to source for breaking news and information and the black community as I mentioned earlier I know many of you are interested in hearing more about our podcasting business and I want to spend some time discussing this growing part of our company podcasting continues to be our strongest performing.
Business line, reflecting the fact that we built I heart into the number one commercial podcast publisher in America with 252 million downloads a month as of September which is up 71% year over year in Q3 as measured by pod track. We were number one in downloads each month, our audience continues to be.
More than twice the size of the next largest commercial pod caster and we extended our lead over all other ranked pod casters, let me share with you our model we partner with the best content creators in the world some of who our very own radio talent distribute their content to the largest audience possible without a pay wall and.
Use the unparalleled scale of our broadcast radio business has a built in marketing machine to drive engagement with our podcast shows we feel this is an important part of our secret sauce. It's how we continue to build hit by cast after hit podcast and how we continue to grow our leadership position. According to pod tracks latest data.
Not only are we number one overall, but we currently have the most shows featured across all categories and we have ranked shows featured an all 19 possible categories. The most among all publishers, let me be clear podcasting is already a profitable business for us and has an EBITDA margin that is higher than the overall.
Company margin.
Our podcast business is advertiser supported it's not subscription based and it's not behind the pay wall, which enables our creators to share their passion with the widest audience possible. It was we distribute their podcast not only on the iheartradio app, but across as many other distribution platforms as possible I want to point out that because podcasting is.
Jason business to our radio business, we've been able to use our broadcast radio assets to drive podcast usage and build hit shows if you think back to a similar situation the television faced and how they missed an adjacent business, which is called Netflix by the way, we not only did not miss our chance, but we're currently the industry leader.
In our adjacent business.
To further strengthen our position as the number one podcast publisher in October we acquired blocks nest to continue to increase our monetization capabilities. The box nest acquisition provides two crucial benefits to our podcasts business first it opens up meaningful additional targetable inventory to our podcast advertisers and second.
It will allow for the more efficient monetization of our inventory by helping to connect the fragmented programmatic marketplaces that exist and podcasting and establishes the first at scale real time bidding podcast platform for non premium podcast inventory.
We believe the addition of Voxx nest has the potential to be a significant contributor of growth for our podcast business when combined with the audience distribution and quality of content that iheart can provide.
As a backdrop the podcasting all of our other growth opportunities. They are made possible because we have a deep connection to the communities. We serve we provide our consumers with the products and services. They expect from us regardless of where they are and what platforms theyre using and as our consumers listening behaviors have changed our leadership position.
And across multiple devices has ensured that they have a multitude of ways for our consumers to engage with us even now a certain areas of the countries have shown signs of returning to normalcy and people had begun to resume many of their old habits and lifestyles digital listening on home devices is still up consumers continue to engage with our multiple.
Platform offerings at rates equal to and in some cases greater than they did in the second quarter Lockdown and our hope and expectation is that we will continue to benefit from consumers, having learned the fine and use our products across these many new devices early indicators show consumers are sticking with these new habits Iheartradio digital.
All listening has seen double digit year over year growth across digital devices like 42% on smart Tvs and even up 11% on smart speakers.
Since our company reaches 90% of all Americans every month listening to understanding and integrating input from diverse voices and views are critical to our business success as a company we value diversity and we respect all voices from both inside and outside our company at the beginning of 2020, we announced our company are low.
Latest steps to enhance diversity at Iheart with increased focus on recruitment education, Mentorship and accountability, we remain committed to further increasing the diversity of our organization from more board diversity to appointing a chief diversity officer to requiring consideration of diversity candidates for all of our major hiring and promotion.
Decisions improving are interviewing process to include a wide representation of interviewers instituting a diversity equality and inclusion advisory board and on the content side, making diversity, a real priority, including pledging that 50% of the new podcast, we launch of the Iheart Pie guest network will be from.
Female and diverse creators as well as a number of major programming initiatives on our stations designed to foster understanding through more diversified sources, serving our communities is more than a platitude. It is at the heart of our product strategy. During the pandemic, we've built a virtual events business from the ground up producing virtual.
Concerts and filling the void in People's lives left by missing events due to the pandemic like commencement speeches for the class of 2020, our virtual commencement address podcast for graduates a virtual homecoming celebration for HPC use and the Iheartradio Music Festival, which generated a total of 19.4 billion. So.
Social impressions up 20% over last year's event and more than double the total live stream of last year's live and in person event. The Iheartradio Music Festival own Tonight on social media with the hashtag Iheart Festival 2020 trending worldwide in 14 countries and 64 cities in the U.S. post pandemic.
Virtual amounts will certainly be a new category for us and we expect it will be accretive to our sponsorship revenue line.
We also continue to pioneer new products and technologies like the blown house and Air Monkey produced 13 days of Halloween, a thrilling horror anthology they use cutting edge three D audio and sets a new standard for podcasting. If you haven't already a highly recommend that you listen in order to experience and understand the power of this new audio technology.
This is just one more example of our commitment to delivering the entertainment the information and the companion chip that are listener seek ritual.
Rich will take you through the details of our Q3 performance, but I want to leave you with just these few points first scale matters. It bears repeating that broadcast radio remains the number one reach medium and the U.S. that we are the number one audio company in America by wide margin and that we have used that position to transform I heart into a true.
Uhhuh multi platform company with diverse yet complementary revenue streams and to use our leadership position to build new businesses like the Black information network and a recently launched Iheartradio Sports network.
We're encouraged that revenue continues to improve sequentially and that while there is still some uncertainty about the future. We believe that of current macro trends persist we're on a path to full recovery.
Our performance. This year has shown the value of our multi platform and investment strategies as the parts of our business that had been the most resilient and perform the best during the downturn have been our newer diverse offerings our relationship with the consumer has only grown stronger during this downturn in the past we've seen consumers turned to us during times of crisis.
The need the same has occurred during the pandemic, but on a national scale and for a longer duration and we expect this strengthened relationship to continue after the pandemic ends we continue to be disciplined capital allocators with a focus on reducing costs and creating efficiencies covert hit every.
The one hard and quickly, but the economic downturn has continued to prove that one of the core strengths of the company is our free cash flow characteristics. Even during the pandemic, we saw positive free cash flow a $14 million in the third quarter. Finally, I want to remind you that before cobot hit we had already taken steps to modern.
It's the company investing in growth areas and creating centers of excellence across the organization, resulting in savings of 50.002 million 20, and a run rate of 100 million by mid 2021, both of which were on target to achieve when cobot hit we again took decisive action to further reduce our end.
Your expenses helped mitigate the impact the economic downturn was having on our business and to accelerate our modernization efforts by identifying another 200 million of savings we remain on track to achieve the 200 million of additional savings in 2020 and have plans to make the majority of the 200 million of savings part of our.
Cost structure and to 2021 and beyond this downturn accelerated our discovery of new ways to operate that will make us a leaner more efficient organization with improved operating leverage that will carry forward into the future as revenue continues to recover before I turn it over to rich I want to emphasize that while we're working hard.
Third on our recovery through co, but we're also laser focused on ensuring that we are well positioned to take advantage of the growth opportunities post cobot rich. Thanks, Bob the challenging macroeconomic environment, which began April has improved significantly and while we've experienced sequential improvements in each.
The mindset of filed and see multiple areas that give us reason for optimism we continue to experience year over year revenue declines in terms of our third quarter results. If you turn to slide seven of our investor deck on a reported basis, our consolidated revenue decreased by 22% over the prior year period.
Direct operating expenses decreased 13% driven primarily by cost reductions associated with our modernization initiatives as well as those taken in response to COVID-19.
In addition, variable operating expenses decreased 13% and along with lower revenue recognized during the period.
Operating expenses decreased 11%.
Driven by our cost reduction initiatives and lower sales commissions, which were driven by the decrease in revenue.
Corporate expenses decreased 41% during the third quarter compared to the prior year quarter, primarily as a result of lower employee compensation, including variable incentive expenses and employee benefits, resulting from expense reduction initiatives.
The decrease also included the impact of an $11 billion decrease in share based compensation expense compared to the prior year quarter.
Declines in our third quarter GAAP operating income 39 billion compared to 141 million in the prior year quarter as well as the declines in our adjusted EBITDA to 162 million.
From 275 million in the prior year quarter were driven by lower revenue.
Turning to slide nine.
Ill provide additional color on the performance of our revenue streams it.
In our broadcast business revenue declined 29% on a reported basis.
Networks declined by 26% year over year.
Our digital revenue stream grew 17% driven by continued growth in podcasting, which increased 74% year over here.
Oreo and media services increased by 25% our reported basis driven by CAD.
Benefitted from extremely strong political spending, particularly in TV spot.
Sponsorship and events revenue decreased by 27 million or 48% compared to the prior year period, primarily as a result of the post forming or cancellations of physical event again, partially mitigated by the success of our virtual events.
Turning back to our consolidated results I look at the below the line interest expense decreased 15 million compared to the same period in 2019.
On slide 12, there's a summary of our balance sheet.
At quarter end, we had approximately 5.3 billion of net debt outstanding which includes a cash balance of 714 million.
Our net debt of 5.3 billion is down over 200 million for 5.5 billion at the same time in 2019.
Importantly, we generated $14 million or free cash flow in the third quarter after having negative free cash flow of $7 million in Q2 2020, we.
We took early actions to focus on cost management and have continued to add Hawaii. Some trust our cost base throughout the year.
In order to maximize liquidity to be prepared even if there was a protracted recovery.
The fact that we've been able to return cash generations proof for strict cost controls of our sequentially improving revenue trends and most importantly of the company's strong free cash flow characteristics as.
As a reminder, the terms of our debt structure includes no material maintenance covenants and there are no material debt maturities prior to 2026.
As we look ahead to the fourth quarter, we expect that revenue will remain challenged given the impacted COVID-19 can change to have on the macroeconomic environment and advertising trends. However, we are cautiously optimistic as we continue to see improvement in the rate of year over year revenue declined two why or.
Yes, and September declined, 27%, 21% and 18% respectively.
We just closed the month of October and finished plus 2% year over year.
Although we recognize that there is still some uncertainty right now we project Q4 revenue will be down bento teens on a year over year basis. I also want to provide an update on the modernization and cost initiatives that we announced earlier in the year.
Together these initiatives remain on track to deliver the expected $250 million of expense savings in 2020, as we have said previously we expect our modernization initiatives to deliver $50 million of savings in 2020 and $100 million of annualized run.
Great savings by mid 2021.
We are fully on track to achieve these savings.
We are also on track to achieve all of $200 million opposed covert savings in 2020 further.
Further we have developed detailed plans to make a majority of the $200 million oppose covance savings permitted as we have developed long term structural expense savings within our cost structure.
These savings include continued optimization of our real estate footprint. The adoption of technology solutions that will drive increased efficiency and effectiveness of our operations decentralization of resources into centers of excellence significant reductions in TV consulting fees disks.
Musharraf spending employee hiring.
Continued monetization organization.
Their pin debit forced us to transform the way, we do business more rapidly than we could ever have imagined and the actions we have taken leave us exceptionally well position for margin expansion.
Advertising activity continues to recover.
Our full year capital expenditures guidance remains unchanged at approximately 75 to 95 million, but we will come in on the higher side. The range as we expand capital in Q4 to drive operational efficiencies. We continue to expect minimal cash taxes in 2022 Invacares there.
As a reminder, the provisions of the act up for tank US result in our ability to go talk to 100% about 2020 interest expense as well as a portion of interest from prior years that was disallowed and the deferral of perpetual avoidance, there's a certain credits we might qualify for two.
Thousand 20 payroll tax payments, we also want to update you on the Companys FCC petition with respect to the foreign ownership of our equity.
On November 5th the company received a declaratory ruling from the FCC granting the company's request to up to 100% of the company's equity and voting stock to be owned by non U.S. persons subject to individual holder foreign ownership and media cross ownership limitations, which can.
We need to apply.
This ruling or allow for the simplification of the company's capital structure and enhanced liquidity of the company's class a common stock by facilitating the conversion of the warrants, which currently represents a little over half of the company's equity.
Warrant holders will receive instructions through U.S. mail from Computershare, the company's worn AJ regarding how to participate the exchange of warrants.
Wrapping up we believe that our previously announced modernization initiatives and cost savings actions in combination with our reserving capital structure.
Provides us with financial flexibility and ample liquidity.
We are confident in our ability to drive shareholder value.
Operational discipline and continued investment in the areas of our business that will position us for growth as advertising demand continues its return.
And again, we'd like to thank our employees are committed to serving our customers our communities and our business partners. During this challenging time. We appreciate you all joining our third quarter earnings call and now I will turn it over to the operator to take your questions. Thank you all.
As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the pound or hash key please standby we compiled acuity roster.
Your first question comes from line of Jessica Reif or a bank of.
Your line is open.
Thank you.
You guys talked a lot about the cost savings and the.
The continued benefits that you've been streamlining how are you thinking about opportunities to invest in growth as you continue on this path of recovery and all the news lately, it's been really good news so hopefully.
Sequential double see sequential improvement, but how do you think about the sizing investments in growth and in areas like podcasting breast.
Yes, it's like de leveraging the balance sheet. So it seems like you'll have great operating leverage and then secondly can you just talk a little bit about.
The you mentioned and its in the press release the agreement with Quest can industry is to distribute monetize content is this something that we should expect more can you talk about the economics of the deal like this how it's structured what are the benefits to competition shows.
How does it affect you producing your own podcasts. Thanks.
Yes, Jessica let me start with the second one and I'll, let rich jump in on the on the first part of that I think on the agreement.
Announced today with one of the major part Casters Pushkin industries.
Which is Malcolm gladwell.
And and Jacob Weisberg founders.
I think that what we got and you know it gets into this whole area about.
The talent the wars and podcasting is we probably have the best weapon anyone does which is we have the biggest platform and if you've got a podcast or you think you're going to have a big cast.
You really wanted on the biggest platform.
You want to be able to use that power, we've got of our radio promotional platform behind it.
And we've got the largest salesforce in audio and podcasting to maximize monetization so as opposed to us having to go by people.
We're able to offer them something thats very healthy, which is an opportunity to have.
The biggest return on their investment creative investment and dollar investment by joining our platform.
And I think if you look at the podcast we have today.
We make some.
Completely ourselves with absolutely no profit participants we have some like you know this is like doing television show or movies, we have some that have.
Small profit participation subset of larger something that we do and partnerships. Some we co produce.
And it's the full range of it but for US we're very cognizant of profitability and we're very cognizant of margin and we want to make sure. We keep our podcast margin higher than the overall margin of the company. So this indeed is a growth business and in every way rich you want to add to that yes. Thanks, Jeff.
Thanks for the question just I mean, just one thing I'll end with one on Bobs one of the podcasting there to your point on cost is you know Bob noted in his opening remarks.
The people that not just pushing so you kind of look back at facts as opposed to what people say to reiterate cause point actually.
Weather was wolf, though that we all know about liquid no Bobbi Brown War.
Charlemagne and.
Tos for Black Fox Network, which is our partnership with Charlemagne Enrique Santos or that Bob talked about his remarks. So everybody can say a lot of work I think the proof is in the facts.
People that are both committed to us, but it was because of our asset base.
And the ability for both of us to make money partnership below about talent.
On the cost side.
We've got we highlighted in the opening remarks, I think I wonder why remarks.
We expect a substantial piece of the cost savings that we announced this year the $250 million to be permanent.
I'm not going to give you an exact number on that because that would really be tantamount to giving guidance, we're not giving guidance for the rest of the.
This year, a little Bob's comments, they talked about on revenue for Q4 or going into next year, but I think like a lot of companies in America, well, we've learned to be you know honestly just wildly more efficient probably been in the past and I'd say, we all as a management team Bob myself or Mark.
Yes, it on this call and the rest of the wall leadership on bundling also and podcasting.
Investment again, I would just point to the facts over the last couple of years, if you look at it.
Investment that we just announced that Bob highlighted in his bobs box meals.
If you look at Joey.
We did.
Nobody here and a half ago were little won't and then that will begin as a reminder, all.
Wasn't foundation that makes all broadcast inventories look like digital and gave US a foundation dialogue today.
During that spreads if you look at stock works each of those investments.
Not significant to the company's overall capital structure, Yes, Bob mentioned in his remarks about box and it seemed that $50 million.
Approximately $50 million in total we owned a small piece of the company before yes jelly stuff works could that like all three total or maybe a $150 million approximately but I think the key is is that they all make the rest of the iheart base that much more valuable.
Terms of the ability to generate EBITDA.
Most importantly, we generate free cash flow and just the final thing I'll add is that I think also the highlight if you look at our free cash flow.
The investor deck like to give up on that page on towards the end.
Even in the toughest operating environment.
She'd we've generated approximately 70 $577 million increase operating free cash flow.
She has I think I'd, just reiterate wherever environment, we're in the Rio great free cash flow generation ability of this company.
I have one other thing to it too is that I think going to your point Jessica.
When we look at.
Our future and where our growth opportunities are we look at the pieces that are necessary to make it happen and we look at do we make buy or partner and when we buy we want to buy efficiently, we try and buy something that has what we need but that can benefit.
Fit from what we can add so that we don't have to pay outrageous prices for it we're able to buy the piece and then we add a lot of value by putting our scale to it and I think you've seen us do that as rich mentioned the jelly you've seen us do that with so.
Stuff media.
Where you know we bought less than 5 million unique users today I think our podcast number is over 27 million. So we've really added 22 million on top of the five organically and those are the kinds of acquisitions. We go for once that we think we get enormous leverage out of and and that we think are the most.
Fisher way and the most effective way to get the value creation as opposed to two making it ourselves or partnering for.
Thank you.
Your next question comes from line of Steven Cahall from Wells Fargo. Your line is open.
Thanks, just wanted to dive a little more into podcasting, So maybe first.
Where does the inventory for Fox has primarily come from and we've seen some similar AD tech investments from Sirius XM and Spotify and I was just wondering if you think about that as competition at this point or is it kind of everybody growing the pie and getting advertisers to commit more funding to this so is it is it a market share back.
Well or is it kind of good good for the whole industry right now is everyone invest sent an AD tech.
We're seeing a huge expansion of the pie. So I think for the foreseeable future, where all benefiting from a growing marketplace. I think when you look at Fox Nast, what it really allows us to do in simple terms is have an electronic trading platform for our non premium inventory.
We've done extraordinarily well selling the big premium inventory for our very high profile, a big podcast, we have but there is always a piece of it that remain unsold thats not premium inventory.
In the sense of what podcasting will get on the premium level up.
And so by putting an electronic platform together being able to combine that with data being able to combine these fragmented podcast marketplaces that are out there and being able to deliver it as a real time bidding platform I think give us a tremendous way to add additional value to what we already have and becomes important to us and then there's some.
Secondary benefits there is some tools there some AD serving capabilities et cetera, but I think the marketplace and going after.
At any unsold inventory.
Or getting more efficient with our unsold inventory is a great way to to help the bottom line of the company and the top line.
Thanks, and then on AD sales I was wondering if you could maybe give us what political AD sales dollars were in Q3.
And maybe also in Q4 and just as we think about the core trend.
Is it possible for you to help us think about how core advertising is improving excluding what the impact of political might be since second shifted around on those month pacing that you gave.
Sure Rich you want to hit that.
Sure sure so.
First of all we've said.
In terms of political this will be.
By far the biggest political year, yet we've ever had.
And just as a reminder, we also benefited not just from the core the I heart UGG business, but we also benefited from the fact that we have caps and member count. So yes. The TV what business is one of the largest TV.
You know firms out there.
But you know if you look at it.
We were in Q3 political revenue.
We were approximately about $40 million.
October was up.
You know.
Also.
We were about $55 million in October and then as you look forward, we will continue to benefit from political but I'd say November much lesser extent that we Didnt October.
But you know, we'll still get some significant benefits.
Total, but just to be clear. So 40 million October was 55, and then we'll get some benefit in November which would be less than October out there.
And then we continue to see it's Bob I think pointed out in his remarks, just one reminder, we're doing all the same inventory here. So clearly we're getting a benefit from political we're getting a benefit both companies tightening of the inventory in the advertising market.
Talk about the ideal said that going forward in terms of the value is the guidance. We gave for Q4 we'd be.
Low to mid teens.
He digit.
Down in revenue, but we continue to expect to see sequential improvement in Q4 compared to Q3.
Even as we leave the benefits of political as we talk to that.
Yes, let me just add to it to be clear.
Without political we still have seen the sequential improvement of AD revenue.
I think I think you are asking.
Yeah, Great that's perfect and then last one for me rich.
Rich you have the cash tax benefit this year, which you called out as we just think about how you might convert adjusted EBITDA into cash flow next year.
Anything else I mean, you talked about maybe some capex stepping up and Youre I guess become a full cash tax payer anything else, we should be thinking about in terms of your cash generation.
No I mean look at again, we haven't given any guidance, but I would as you as you go through the 10-Q.
And again, none of us know what the tax landscape.
I'll speculate all but nothing that you're going to speculate but none of us can know what the touch landscape or may or may not look like that's your any changes, but just as reminder, is everybody kind of goes through the 10-Q today. We showed some pretty significant tax attributes started with an a well no wells excuse me that we can utilize for the company.
Going forward, obviously good in 2021.
So the bottom line is you are just going back to what I said earlier, you know the attributes of this company and the ability to generate free cash flow I think we've demonstrated this year and we expect to continue to demonstrate going forward.
Great. Thank you.
Your next question comes from the line of John Chambers from Wolfe Research. Your line is open.
Thanks, maybe a quick follow up to Steve's question on Podcasting, you talked about the EBITDA margins or monetization along with box nest given the current margins and cost of the content is.
Is there meaningful upside on the margin front and podcasting from here and I think you alluded to this a little bit but from an advertising perspective is that bucket of money coming from a different part of the client budget.
Away from traditional broadcast thanks.
Yes, it too I mean, the good news about podcast is it is sort of the the shiny new thing.
And I look I'm, an old Guy So I go back all the way to end cable networks came about and what's interesting is every time there has been a big economic downturn, the advertiser decided to take a chance on something new.
Good times when you say have got a great new idea. These cable networks, they say sounds great, but my business is doing well I don't want to rock the boat when things are not so great to say, okay. I'll try that new thing. If you look in the recession of 88 that was really.
The time at which the.
The advertisers began to get cable networks, a shot you saw a big upturn in revenue there in the later Ninetys you saw 97 the downturn there you saw them give a chance to the internet Internet advertising.
The turn of the new.
Century, we saw search emerge in Oh wait nine we saw social emerge and were seeing podcasting is that now and whats interesting to watch that would really love about podcasting is we're bringing some advertisers and the podcasting who were not major advertisers and anything in audio much less just radio and.
And they are pulling the money from.
Wherever they pull it from presumably TV or digital budgets I think it's probably more like digital budgets in their minds.
And they are making this a priority spend and then things fall behind podcasting, all really good news for us and I show.
See no signs that abating, if anything I think it is increasing what it also does its one more door to get people to to do business in audio we've had some advertisers that have started and podcasting and then decided they wanted to use rate they liked it and want to use some radio too.
At first associated with the podcast second to just say I like the way it works on getting an understanding of audio and the impact it can have and so we spread them across our other assets. So if we think about all of our platforms as separate doors to bring advertisers and by the way we brought some major advertisers into the company initially.
Through events.
Did not think they wanted to buy radio didn't think they wanted to buy audio. They just wanted to be associated with that event and eventually became a huge advertisers on radio as well. So we see podcasting as as that and probably stronger than weve seen with any other platform. So we're very encouraged by that.
Hey, Bob and if I could just add one thing I just want to maybe just come back on one point back to it maybe each of the three questions. So far on barge point I think reinforcing our views are you have you know another you know what you view I think its objective third party view is the point that Bob made when we may be now.
Today with the Balco.
Well and all the other podcast warm I want to repeat them you know, we don't mortgage factually, but you can assume that each of these individuals or teams that chose to come with diehard all had many many many other choices and where they were choices to go behind the pay wall you know.
Other very appealing financial characteristics that may be have more appealing guarantees not knowing anything on.
Each of the ones, we named obviously chose to come with us and they can chose to come with us for all the attributes that Bob. So I just I just think it's another validation and combination not just in the media, but hard to place in that medium as you know merger.
And rich I think going to that point, you know to hit it head on.
We've got the number one platform.
Platform and so we don't think we have a need to and we don't intend to go buy share.
We are looking for everything we do we're looking to be profitable, we're looking to be a nice profit contributor.
Put it through a pretty tough screen of economics for US now, presumably using our platform and our monetization engine, we probably can get more revenue out of any podcast them. We think anyone else can so it gives us the ability to perhaps reach a little farther just like with air talent, we have the ability to.
Spread talent across multiple markets or two.
You know put them in a situation where they have a bigger platform. Therefore.
The economics are better for them better for us So we see that and podcasting and we are so far had been successful that we continue to have the deals. We've done is help people build hits, which by the way the more people we help build hits the more people want to come to this platform for us to build them there yet.
That's helpful Rich, maybe a quick one the release mentioned potential.
Reduction in real estate footprint I'm wondering if that includes potential asset sales.
No.
Well, let me take one step back to us. So we have nothing there is nothing thats planned.
In terms of any asset sales I think we are not I think we do have one job in this company heard Bob and I say, Tom Tom again, which is to focus on driving driving the equity value of this company driving value for all stakeholders, so were constantly challenging ourselves.
As to what the right asset bases today, I think Bob hit it head on and put a very fine point on it we don't reach.
South America is when you look at all of our stocks, whether its podcast store or digital all of our attribute we don't see me add anything and at the same time.
Go back over the last couple of year period of time right down to the towers sale leaseback. We did a couple of years ago, We're saying Gee, what's the best financial transaction to do that gives us and maintains our strategic footprint drives EBITDA, but.
But you know constantly.
Keeps this unique asset base together in terms of size and scale and reach and uniqueness. So I don't see that's a little bit long winded answer, but it combines both but with the filter. We have I think Bob you used the term coke or number of different times, whether it's capital allocation.
However, you think about the term filter sales are in that same filter, but I don't see I don't see anything out there today, that's going to come onto the market for us.
Let me tell you also talk about real estate rich.
Rich.
Let's take point, so I think that you know when we said it before I want to say it again that we've learned a lot through covance and our people. If you think about it had they've had 10 years of technology learning and three or four months.
And as a result, we envision operating differently in terms of how we operate our space.
I think they are going to be although I think everyone will probably come to the office. Some I don't think we're going to have the need for the same amount of space.
At the same number of employees.
Understanding that some people can get a lot more of their work done outside the office and they'll have to be in the office, 100% of the time and how they work and where they want to work in the office has also changed as a result of Cove. It and I think we're taking that into account and we're going to move aggressively on downsizing our footprint too.
Accommodate that.
Thank you.
Your next question comes from the line of Jim Goss from Barrington Research. Your line is open.
Thanks.
In terms of downsizing or footprints relative could that involve station sales for example, no true my true.
Maybe in some of the smallest markets for example.
Let me, let me hit that had on when I said footprint I mean in each location will make do with less space than we have we have no intention of walking away from many of our locations and I think you see one of the real strategic values of this company that makes it different from everybody else is how many locations rent at 160 Mark.
Kits with owned stations, there's no one in America that comes close to that radio or TV, and having that kind of distribution and that kind of control lets us offer things to advertisers no. One else can it lets us develop these the value of scale and indeed, you saw it in the.
In this political season is if were everywhere and where that this kind of footprint no matter. What states are hotter cities are hot we probably got a product there to take advantage of it. So we like that we think it's one of our strengths we don't see a.
A need or a value.
Value in reducing that because we think that's one of our strongest strategic differentiators I mean in in radio we are the only radio.
Radio player that really offers national coverage with our own stations.
Addition to our networks and I think that makes us very unique.
Yes, and Bob character that John Jemmott, you wouldn't let me just add one can do a Bob just covered I think if you actually go back to Bob Hope remarks, there were four points better.
Hi body move company about our future walkable EPS growth strategy, one of those points was monetization and we said and related cost savings. So it's a lot more than just cost savings. It's also developing the studios in the future that we've talked about you utilizing cloud based technology and really taking.
Advantage of AI as Bob noted that these number of years of investment and the experience of our team that really helps us maximize the performance not just on advertising right, but quite frankly on a listener fraud on a programming from each of our markets and we've created centers of excellence across the organization.
Things that really consolidate key Royce resources for the whole company to take advantage of increasing quality and improving cost and prudent serves I'm sorry cost reduction happens to be a benefit of that in a byproduct of that what we are improving quality in service at the same time for our listeners and so on.
Don't think.
Bob I really haven't sorry is that when we talk about footprint in efficiencies. It really is on both sides.
And rich if I can just add to that because I think thats an important point that we should make sure.
To get out is we talked about how many markets. We're number one in and I think the reason we have that kind of audience advantage is because of the quality of the programming, we do and we've made great investments and tools to help our programmers and one of the things. We have today is I think we have one memory serves me correct something like three.
Thousand data inputs into music selection music balance understanding how the flow goes.
At that level data inputs, a human mind can absorb it but can so we built AI overtime.
That can assist our the people, making those choices. So they can make higher quality choices and those kinds of things we've been building over the years, our I think paying dividends and you can see it in the performance of the company and we continue so yes, we'll save money, yes, it'll make us more efficient, but I think primarily.
Only if it makes.
Better.
I was thinking of asking whether youre doing any additional multi casting.
Isn't that a top tier talent that you have but now I'm wondering if with the guy that you've mentioned I think its past calls if if instead you might look at spot loads and maybe have fewer but perhaps more expensive ones and try to address revenue as such.
Question that way, maybe not just now but going forward as the economy begins to improve hopefully with the new vaccine.
Well look we look at everything and I will say, though we have not found spot loads to be an issue since the cassette player went into the car decades ago.
Radio has not been the place you go if you want no commercials radio has been the place you go if you want companionship and you want to find out what's going on in the world and and I actually think that if you've ever listen to radio station with no commercials on it you feel a little lost because those commercials actually tell you an awful lot about what's going on there.
People are not coming to us for music.
For the primary goal, because probably 25% of our stations Diamond play music they come to us for companionship, we're keeping people company and what do people do when they have a relationship they often play music for each other so that's the reason we play music we talk about it a lot we have the people on the air who may get to talk about it.
And part of our mix or commercial so.
That's not a problem we're trying to solve for.
We're trying to make sure that when people come to us that they indeed are engaged they they bond with us and it becomes a habit for them.
Okay, and then maybe lastly, with this are optimistic look at a potential vaccine or multiple vaccines.
What impact do you think that would have and maybe trends accelerating anything.
That's your business model.
That's a really good question one we've been talking a lot about before today and certainly today that I think the vaccine certainly encouraging news for society, but certainly for our business too.
A bit harder hit categories, which haven't come back much from Q2 to Q3, a lot of our growth came from categories that were down a lot.
In Q2 and are just beginning to come back.
Like food and beverage auto restaurants.
Retail, but if we get a vaccine we can see the return of some big spenders like movies concerts. So.
Some of the retail that has not come back so much.
Local businesses like local restaurants.
So we think it's a it has a tremendous can have a tremendous impact on our business and are watching it carefully.
All right. Thank you very much.
Well I for one more question operator.
Yes, one moment please.
Unfortunately, we do not have any further questions at this time I turn the call back over to rich bressler.
Well first of all I want to thank everybody.
On behalf of all of Us.
After taking the time today.
Thank you for listening to the story.
One thing I will just add in closing is that because I know for the last.
A couple of years, Bob and I have met and talked to a lot of view we are constantly gotten the question about.
Well, we will again get to get approval from the FCC. It I know it was in our press release and my opening remarks, but I just want to reiterate that the FCC has approved the ability for our warrant holders to convert in the class a.
The process they need to go through all that you don't want so we don't need to we don't need to go through like here, but.
But you know.
It's a fairly automatic process that will allow people to convert beginning January which will double.
Approximately double the public float of our market capitalization out there. So again, that's been I think are worth at least some.
Some period of time closer to normal on question, we've gotten from people. So I just wanted to proactively reiterate got before we close and thank everybody again.
Yes.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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